How to solve N.G. Mankiw's 'One Per Cent' and endogenously connect micro with macro levels
This paper is one of two sister papers and intensively proves one new fact that ‘the relative share of capital, a,’ (a-neutral) is independent of macro-inequality, with its implications, in “Earth Endogenous System” (hereunder the EES). Tightly a-neutral is connected with other neutralities. Thus this paper extends a-neutral to other neutralities; deficit-neutral, politics-neutral, and spirituality-neutral, deepening the essence of the EES. The other paper of the two sister papers was discussed at International Atlantic Economic Conference, Philadelphia, #244, 12 Oct 2013, and empirically proves another new fact of the real rate of return=0 (RRR=0) so that the whole story is integrated by the two sister papers. The whole story is always ‘scientific’ in the EES and also in two-dimension plane topology, simply reduced from endogenous equations. All of new discoveries/facts commonly reinforce the market principles under the price-equilibrium. Starting with a-neutral, this paper proves that a country is free from aggravating macro-inequality by person and attains full-employment under no inflation and no decreasing in wages. This is because ‘purely endogenous equations under no assumption’ produces marginal capital productivity=the rate of return and marginal productivity of labor=the wage rate (MPK=r and MPL=w), which is another expression of perfect competition. As a result, an exogenous Phillips curves (1958) turns to lines. And, stop-inequality and full-employment are realized, where statistics date are always in a certain range of endogenous data or KEWT database measured by theory=practice.
Key Words: the relative share of capital; the capital-output ratio; Phillips curves and lines; the market principles; perfect competition; no assumption; marginal productivity of capital (MPK) and marginal productivity of labor (MPL); the wage rate; the relative and absolute price levels; external, and exogenous. JEL Classification: E44; E31; E43.